JS Securities Limited - JS Research.

Karachi -- March 07, 2023 (PPI-OT)

Food sector reflects steady growth and attractive multiples

Despite 23% YoY higher profits during CY22, the food sector continues to underperform the benchmark index by ~10% (-14.2% vs -4.2% return for the index). We take 10 companies in our sample base, which trades at an average trailing P/S and P/E of 1.2x and 15.0x, respectively.

While sales reported 34% YoY growth, margins also remained relatively firm at 25%. Unilever Foods, National Foods, Nestle Pakistan and At-Tahur were among outperformers, while Fauji Foods was the laggard among our sample base.

Double-digit growth in profits have proved sector's resilience to the ongoing macro challenges. We believe current multiples offer potential upside assuming corporate profitability trend continues.

Food cos. weather cost pressures with higher sales

We review Food sector's financial performance for CY22 with a sample size of ten companies (refer table below) as a proxy to the listed food sector. The sector's annual top-line has expanded by 34% YoY, which we believe was a result of higher unit prices. This is also reflected in quarterly performance where our sample base's YoY sales trend reflects higher growth in the later quarters of the year. To recall, CPI during CY22 averaged at 20%, while higher inflation, import restrictions and sharp PKR devaluation were witnessed...